North Carolina to end year with surplus

Posted May 6, 2015
Updated May 11, 2015

Gov. Pat McCrory and Budget Director Lee Roberts talk to reporters about the budget surplus.

— North Carolina will reap $400 million more from taxpayers than anticipated when the fiscal year ends on June 30, Gov. Pat McCrory and top legislative leaders reported Wednesday.

The consensus revenue report is especially good news given that, as recently as March, revenue projections showed the state would end the year with a slight deficit. The extra cushion will give lawmakers padding to put more money into salaries and tax breaks as they begin to craft the state budget this month.

"Like anything else, both good news and bad news, I don't think it's right that politicians try to claim credit for all of it. A lot of it is the fact the economy is improving," House Speaker Tim Moore said. "But I do think the changes we made have helped. The tax reform, the focusing on economic development have played a part in it."

Moore, McCrory and others were careful not to, in their words, "spike the ball," even through they were obviously pleased that revenue projections had swung around. While no set of numbers will silence critics, legislative leaders say the surplus shows a 2013 tax reform package is having the desired impact.

Democratic leaders argued Wednesday that the $400 million boon to the state government came out of the paychecks of average families, while higher-paid workers and corporations saw their taxes go down.

"What about the rest of North Carolina? What about working families? What do they get out of this?" Rep. Larry Hall, D-Durham, asked.

But Republicans insisted everyone was benefiting.

"Chicken Littles on the left loudly cried North Carolina would lose so much tax revenue that students wouldn’t have teachers, roads wouldn’t be built and our universities might have to close," Senate President Pro Tem Phil Berger said. "But far from starving state government, tax cuts and tax reform have spurred economic growth and job creation."

With a surplus in hand, politicians set to work laying out what they would like to do with the extra cushion. Legislative leaders must build a new, roughly $21.5 billion state budget by June 30, the end of the fiscal year.

In addition to putting more money away for a rainy day, McCrory told the North Carolina Association of County Commissioners that he would like to put more money into targeted raises for state employees. He said he also would like to reinstate a tax credit for seniors that allowed them to deduct medical expenses from their taxes and reinstate tax credits that help cities reuse historic factory and warehouse buildings.

Moore, R-Cleveland, mentioned those priorities as well, singling out the same two tax credits as well as a promise to raise starting state-paid teacher salaries to $35,000.

"We're going to keep our promise to new teachers and do something for other state employees, not just teachers. State government is only as effective as its employees," Moore said.

Some of the money in the surplus is already spoken for. State law would take about a quarter of the surplus for reserves and the fund used to repair state buildings.

The surplus also triggers lower corporate tax rates built into the 2013 tax reform package. The corporate tax rate will drop from 5 percent to 4 percent this year, which translates into roughly $109 million less for state coffers. The following year, the corporate tax rate will drop to 3 percent, pulling nearly $350 million from state revenues.

State Budget Director Lee Roberts said the lower tax rates were already built into future revenue projections.

"It's in the context of very strong revenue growth," Roberts said.

But the coming drop in corporate taxes was a target for Democratic critics, who said the state could be setting itself up to cut revenue without really understanding why there was a surplus this year. Sen. Dan Blue, D-Wake, argued that stock sales or other sorts of profit-taking could have given income tax collections a momentary jolt that would fade away by next year.

Blue also said taxpayers felt the pinch of the new tax rates this year in the form of lower refunds.

"On April 15, people realized they were paying more than taxes than they were before," Blue said.

That's not entirely true. When the tax changes were put into effect, new withholding guidelines meant that people would pay less with each paycheck. However, that meant smaller refunds or, for those who did not adjust how much was withheld from their paycheck, a tax owed to the state. Others did see their taxes go up, particularly people who relied on specific tax breaks that were eliminated, such as the medical tax deduction.

"That was always going to be a part of tax reform," Roberts said of how the refunds panned out this year.


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  • Brent Young May 8, 2015
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    Most people did pay a lower tax rate but they lost many exemptions. Eliminating the medical exemption brought a lot of cash into state coffers at the expense of those who can least afford more taxes.

  • Rus Shore May 8, 2015
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    Our wonderful state saw the highest decrease in teachers salaries in the US in 2015 (by a wide margin - 5 percentage points over the next highest). I think we know where that surplus is coming from.

  • Dan Kimrey May 7, 2015
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    The only reason they are showing a surplus is because they aren't sending out any refund checks. I got my federal return 6 weeks ago. Where's my money, tax and spend Republican GA??

  • Allen Kennedy May 7, 2015
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    For all of you claiming the 2.5 bilion deficit, do you not remember that we had the worst recession (and you can say that we're still in it) since the 1920s? Without those larger tax rates on higher incomes until 2013, it probably would have been even worse.

    Also, when you cut inflation-adjusted funding for many state necessities such as university education (thereby setting the bar even lower) you might just have a surplus. In addition to the universities, you also cut funds for many innovative state programs. So, when you do barely anything and you take out tax revenue...you may just have a surplus.

    They should extend unemployment benefits for those who are unemployed or have underemployment they are forced to take. Through no fault of their own, they are threatened to be thrown out onto the streets.

  • Tripp Dean May 7, 2015
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    From some comments it seems clarification is needed about the state budget since 2010. Hope this helps.

    From 06/15/2011: Senate completes override of budget veto:
    http://www.wral.com/news/state/nccapitol/story/9732350/A summary of the budget process can be found at:

  • Roy Hinkley May 7, 2015
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    View quoted thread

    It's not that people are paying less in taxes....but that the personal income tax rate was lowered. The GA lowered personal and business income tax rates, and introduced new sales and use taxes. They also modified or eliminated several income tax exemptions and credits (for example the $50k small business exemption). So, while the income tax rate may drop, it wasn't like they planned to collect fewer tax dollars overall.

    The revenue report that WRAL has linked to indicates that the original revenue projections were purposefully conservative. It also states most of the overage is likely due to business income taxes (and increased sales taxes helped a bit too).

  • Theresa Sierra May 7, 2015
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    Some of that surplus can be used to get textbooks back into the classrooms. Students in some classrooms in Wake county have no text or digital devices to study from. Job well done on the surplus. I think not.

  • Matt Wood May 7, 2015
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    Wasn't there an article just last month about how Medicaid was running $400 million deficit? What happened to that? If people are paying less taxes, how is there more revenue? The fuzzy math is insane...

  • Tom Boswell May 7, 2015
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    View quoted thread

    Please David enough of the rhetoric and refer to facts. Where do you get your info on tax increases for most of us. The rate went from an average of 7% to 5.8%. Mine went down along with all my friends. You need to either hire an accountant or fire the one you are using.

  • Bobby Correct May 7, 2015
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    View quoted thread

    I believe it was around the 7th grade that you should have learned that you must include all parts of an equation to arrive at the correct results (like how much was less was deducted from your check each month).